When social media activities become MA, dealer advertisements

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WASHINGTON – The social media activities of municipal advisors and broker-dealers may under some circumstances be considered advertisements subject to Municipal Securities Rulemaking Board Rules, according to the latest MSRB draft guidance.

The MSRB’s draft frequently-asked-questions on the use of social media in advertising, released Tuesday, is the latest resource published by the MSRB in preparation for the Feb. 7, 2019 effective date of the board’s Rule G-40 on advertising by municipal advisors.

The rule will establish standards for municipal advisor advertising as part of the MA regulatory framework mandated by the Dodd-Frank Act. Dealers are already subject to a similar rule.

These FAQs follow a set released in late June, which focused on the use of client lists and case studies in muni advisor advertising.

Whether material released by a municipal advisor qualifies as an advertisement is a significant issue because communications deemed to be advertisements are subject to restrictions under the new rule, including a ban on the use of testimonials and a requirement that they not be misleading.

Social media use has been a major question for muni advisors, particularly smaller firms, which have been asking for months for some guidance on social media use under the advertising rule. MSRB President and Chief Executive Officer Lynnette Kelly acknowledged that need in a statement released with the FAQs.

“As social media becomes a more common communication tool, developing effective compliance policies and procedures for digital interactions is increasingly important for municipal market participants,” said Kelly. “The MSRB recognizes that municipal advisors, in particular, need guidance as they prepare to comply with newly established advertising regulations.”

The 17-page FAQ document addresses whether social media use by a muni advisor, broker-dealer firm, or individual might be an advertisement. It also addresses whether the MSRB’s advertising restrictions would apply to the content to which a firm provides a link.

The FAQs explain that generally any content published, including online, can be an advertisement if it relates to the products and services offered by the firm.

The FAQs also explain that material on a third-party website provided through a link could potentially fall under the advertising rules if the MA or dealer firm either involved itself in the production of that content or approved that content, whether implicitly or explicitly.

Securities Industry and Financial Markets Association Managing Director and Associate General Counsel Leslie Norwood said SIFMA is looking at the FAQs and will be assessing how the MSRB’s social media rules jive with those of the Financial Industry Regulatory Authority.

"SIFMA is appreciative of the MSRB’s efforts to release guidance for industry comment and to complete all of the guidance to the new advertising rules prior to the implementation date of Feb. 7, 2019,” Norwood said. “SIFMA is reviewing the draft guidance and will be submitting a comment letter. In its review process, SIFMA will be focusing on ensuring the MSRB rules on the use of social media are harmonized with those of other regulators such as FINRA."

National Association of Municipal Advisors Executive Director Susan Gaffney has generally positive things to say about the FAQs.

“The construction of the FAQ is done well and in a manner that is helpful to MAs," Gaffney said. "We are currently reviewing the document to determine critical issues we will address in our comments, including matters that may have been covered in the previous FAQ, such as testimonials.”

The MSRB is asking that comments on the FAQs be submitted by Sept. 14.

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